There is a glaring paradox at the heart of the Liberal Democrat surge that has turned British politics on its head in a week. Nick Clegg's bandwagon took off last Thursday night because he succeeded in presenting himself as a political outsider standing against a discredited Westminster establishment. That was the trigger for the third party eruption that has transformed the election campaign and put the Lib Dems in the lead for the first time since their formation.

The two main parties prepared the ground for their undoing themselves. The Conservatives' main pitch has been the necessity of change, Labour's the threat posed by the return of the Tories. Voters have responded by turning to a third option that addresses both those limited priorities perfectly.

Add to that festering public outrage over the bankers, MPs' corruption and a political class that went to war on a false pretext, and the Liberal Democrats, given unaccustomed exposure, became the obvious vehicle to express it. This is a party, after all, that opposed the Iraq war, took some creditable stands on the banks, and was less tainted by the worst excesses of the parliamentary expenses saga.

But in reality, of course, Clegg isn't an outsider at all. Along with what he calls the "old parties", the Liberal Democrats are an integral part of the political establishment, in Westminster and across Britain. Personally, Clegg is part of the free-market "Orange Book" right of his party, which overlaps heavily with the dominant New Labour and Cameron wings of the other two main parties.

There is already a three-party coalition in support of cuts, privatisation and the war in Afghanistan, as last week's debate showed, which doesn't reflect public opinion. Examine the record of Lib Dem-Tory councils in cities such Birmingham and Leeds – which tried to cut refuse collectors' pay by more than £5,000 last year – to see how new and different England's third party really is.

We should know after tonight's leaders' debate if the yellow tide has turned. Even if it subsides under the fire of the Tories and their media friends, it's hard to see a 10-point leap in support evaporating in two weeks. If so, the likelihood must be not just a hung parliament, but a reconstruction of the political system.

That won't necessarily be in the form people want or expect. None of the post-election options, if polling were to follow anything like the rough pattern of the past week, offers satisfying solutions; and all create dangerous dilemmas for Clegg and his party in particular.

Whatever the constitutional convention about the party with the largest number of seats getting first shot at forming a government, the pressure on Clegg to back a Cameron-led administration if the Tories won the largest share of the vote – rather than support a party that had lost its majority – would be intense.

But given the Conservatives' outright refusal to countenance electoral reform – presumably Clegg's minimum precondition for any electoral deal – and likely visceral Lib Dem backbench opposition to supporting a Tory government, that would be some coup to pull off. Even if Cameron could be convinced to stomach a PR referendum, a second election would be on the cards in months.

Labour's leadership has meanwhile been transparently delighted by the third party eruption, convinced the Liberal Democrats might rescue them from the jaws of defeat. Hence the shameless public – and, in some cases – private wooing of Clegg by Labour grandees from Gordon Brown downwards.

For the Blairites it has another attraction. As one senior Labour figure declared, a Lib-Lab agreement would be "the ultimate fulfilment of the New Labour mission": Tony Blair's abortive project to overcome the century-old Labour-Liberal schism under a reformed electoral system.

They also see it as an ideal opportunity finally to replace Brown with David Miliband – now also expected to win backing from centre-left Labour figures such as Jon Cruddas. If Clegg demanded Brown's head as a condition for a deal, they would be happy to oblige. They even have a special clause in Labour's constitution to lever their man in without a party election.

But quite apart from whether the cabinet would in fact back Miliband, the party has a more serious problem. If Labour were to continue to trail in third place, the Liberal Democrats could scarcely keep it in power, whether Labour ended up the largest party by a quirk of the electoral system or not. That is the sort of thing that leads to coups d'etat or colour revolutions in other countries.

Even if Labour scored a decent second in the popular vote, installing a new prime minister no one had voted for would surely cause public outrage – leaving only the still implausible prime ministerial option of Clegg himself.

Labour's miserable poll ratings have now sparked internal conflict about what several cabinet ministers damn as a lacklustre campaign, which is failing even to mobilise the party's core vote – leaving the Lib Dems to make the running with a fairness agenda they regard as Labour's own.

Meanwhile, even some leftwing Labour MPs are privately enthusiastic about the Lib Dems' success, convinced a hung parliament should give them leverage they have been denied under New Labour rule – as well as the chance to make common cause with the Lib Dems' radical wing.

But there is another possible outcome of the current upheaval that has so far dared not speak its name: a national unity coalition of all the main parties. Since our last peacetime experience of national governments in the 1930s, they have had a toxic name in Britain. But imagine if prolonged political deadlock after the election were to trigger a run on the pound or a bond-market crisis.

City pressure might then demand that only a broad-based government could make the cuts necessary to stabilise the markets. There's certainly enough ideological agreement between the Tories, the Lib Dem right and New Labour for a common programme – though it's hard to imagine all the Lib Dems or more than a handful of Labour MPs backing such an administration. It remains only an outside possibility, and such an elite stitch-up would certainly arouse ferocious public opposition. But the fact that it's no longer unimaginable is a warning that breaking the electoral mould may not have a happy ending.